Leap Wireless to Spin Off Muve Music Unit

Leap Wireless International Inc. plans to spin off its Muve Music service into a separate company, as the carrier attempts to turn around its struggling core business of providing pay-as-you-go wireless service.

Leap, which offers service under the Cricket brand, launched the on-demand music service in January 2011. By creating a new company, Leap hopes to license the service to other carriers and has an agreement in principle with an unnamed international wireless carrier, spokesman Greg Lund said.

“It will be a completely separate entity,” he said, noting that the move is in the planning stages and the timeline for the spinoff isn’t clear. The first carrier agreement should be finalized within a month.

“We feel that would give us a better chance to serve potential carrier customers if it was a single entity rather owned by a carrier,” Mr. Lund said.

It isn’t clear it the company will be public or not, or whether it will ultimately be owned by Leap.

Muve Music, which allows unlimited song downloads, ringtones and ringback tones, had more than 1.1 million subscribers at the end of 2012, a jump from the 600,000 reported in August. Part of the increase comes from Leap’s introduction of wireless plans over the summer that automatically included the music service. Previously Muve was available for an additional charge of $10 a month.

Leap hasn’t broken out the financial performance of Muve, but Mr. Lund said it is “meaningful to the business” with customers using the service tending to show a lower deactivation rate.

Muve is only available on Mobile devices, but Leap is “exploring all options” to expand the use of the product.

Muve Music is in a competitive market that includes Spotify, which has a subscription service for $9.99 per month. The Wall Street Journal recently reported that Google Inc. is negotiating with music companies to start a paid subscription music-streaming service.

Meanwhile Pandora Media Inc. has a popular custom-radio service, and Apple Inc. is reportedly working on a similar service, the Journal has reported.

Last week, Leap reported massive fourth-quarter customer losses and increased customer turnover. The company has been trying to lower its costs and explore options for turning around its business–including selling some or all assets–although it hasn’t yet been included in the latest round of wireless-industry consolidation.

After seeing its traditionally lower-income customer base hit hard by high unemployment, Leap embarked on a major business overhaul to draw in higher-income customers by selling smartphones and offering more-attractive flat-rate terms. The company hasn’t reported a quarterly profit since 2007, except for the third-quarter, which benefited from a large gain on the exchange of spectrum licenses.

Leap ended 2012 with 5.3 million subscribers, an 11% decline from a year earlier. The stock is down 47% in the last 12 months, closing Tuesday at $5.69.